Budget-strapped state is counting on $1 billion of new revenues from program to cut greenhouse-gas emissions, but some say intense focus on making money from auctioning emission allowances has obscure

Sacramento 
California’s quest to curb greenhouse-gas emissions promises a windfall for the cash-squeezed state, which has cut spending on schools, roads and services for the poor.

Gov. Jerry Brown and lawmakers are counting on a $1 billion immediate infusion of new revenues generated by auctioning emission allowances that some industries must buy to comply with the state’s looming cap-and-trade regulation.

This is how California’s cap-and-trade system is designed to work: The state Air Resources Board would impose an emissions cap on selected industries, along with auctioning allowances that can be used as credit toward meeting that target. Businesses that generate fewer emissions can sell or trade allowances to companies that haven’t reached compliance.

Most of the allowances would be given away for free initially. Over time, many would be auctioned.

The state’s share of all that money changing hands could help prop up numerous programs at a time when the budget shortfall is $15.7 billion out of a $91.4 billion general fund. Lawmakers hope to adopt a 2012-13 spending plan by Friday.

“Everything seems to be this money grab to feed the deficit,” said Paul Webster, who tracks cap-and-trade issues for the San Diego Regional Chamber of Commerce.

And that is distracting from the ultimate goal of battling climate change, said Jim Waring, president of a consortium of green energy enterprises called CleanTech San Diego.

“Talking about money has blurred the real purpose and makes it appear that cap and trade is simply another way to raise revenue. That was not the intent, nor the reality,” he said.

Moreover, there is no guarantee the revenues would materialize — at least not in the projected amounts — because the price of an allowance would fluctuate with changing market demands. Also, industry groups are preparing lawsuits to challenge the state’s authority to profit from the sale of pollution permits.

There is another risk: Market manipulation by traders could expose the state to losses, said Assemblywoman Diane Harkey, a Republican who represents parts of coastal north San Diego County.

“California could get fleeced,” she said.

To limit exposure, state officials said they have set a price floor for each allowance.

The proceeds must be directed to uses that reduce greenhouse gas emissions, under court rulings and a 2010 voter-approved initiative. But that still gives the state wide latitude.

One proposal would return some of the proceeds to Californians via dividend checks. Others include either crediting ratepayer bills, issuing annual rebates and helping companies vulnerable to costly emission regulations.

Those ideas, proponents say, would help cushion some of the potentially higher prices for gas, utilities and certain products made in factories that emit greenhouse gases.

There are at least six bills and competing interests vying for a piece. One bill would send some money to schools for energy efficiency. Another would carve out funds for “disadvantaged” communities affected by climate change.

Gov. Brown proposes to split the money in half: $500 million for new programs and $500 million to supplant the general fund revenues that currently pay for wide-ranging initiatives to reduce emissions, from energy conservation to public transportation. That would free the general fund dollars to be used to spare other services from deeper cuts.